COURT FILE NO.: CV-11-436846
DATE: 20211116
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MANN ENGINEERING LTD. and ARIS BUILDING TECHNOLOGY INC.
Plaintiffs
– and –
VIPUL DESAI, DCL ENGINEERING LIMITED, CERTFIED BUILDING SYSTEMS, JOHN LUCIC, CHANNA PERERA and HUI YING YU also known as CAROL YU
Defendants
Ted Flett, Richel Castaneda and Daniel Hassell for the Plaintiffs
Jonathan Frustaglio, for the Defendants Channa Perera and Hui Ying Yu also known as Carol Yu
HEARD: April 19-23 and June 25, 2021
AMENDED REASONS FOR JUDGMENT
VERMETTE J.
[1] The defendants Channa Perera and Hui Ying Yu (also known as Carol Yu) (together, the “Defendants”) are former employees of the plaintiffs. This case arises out of their departure from the plaintiffs’ employment in 2010. The plaintiffs sue the Defendants for damages for breaches of their employment agreements, breaches of fiduciary duties, breaches of common law duties and conversion.
1. FACTUAL OVERVIEW
[2] The plaintiff Mann Engineering Ltd. (“Mann Engineering”) is engaged in the business of providing consulting, engineering, procurement and construction services, including services relating to heating, ventilation and air conditioning (“HVAC”), chillers and boilers.
[3] The plaintiff Aris Building Technology Inc. (“Aris”) is a subsidiary corporation of Mann Engineering. It is engaged in the business of providing design-built HVAC solutions, facility automation, monitoring systems and HVAC service contracts.
[4] The principal of both Mann Engineering and Aris is James Mann. Mr. Mann is a professional engineer.
[5] Mann Engineering and Aris work jointly to provide HVAC solutions, building automation and monitoring systems to their customers. In 2010, approximately 90% of their work was in the vertical multi-residential market (condominiums and apartment buildings). While Mr. Mann indicated during his testimony that the plaintiffs serviced Ontario, most of the plaintiffs’ work in 2010 was performed in Southern Ontario, including the Greater Toronto Area, Ottawa, Niagara Falls and Kitchener. Mr. Mann noted that the multi-residential market was limited in Northern Ontario.
[6] The defendant Vipul Desai is a professional engineer. He started working for Mann Engineering in early 2000 pursuant to a consulting contract and continued to do so until May 30, 2010, except for a two-month period between mid-December 2009 and mid-February 2010. At the time of his departure, Mr. Desai was Vice-President of Mann Engineering and had been so for a number of years. Mr. Desai had day-to-day control over Mann Engineering’s business and was the “number 2 person” in the company, after Mr. Mann. According to Mr. Desai, he left Mann Engineering as a result of Mann Engineering terminating his consulting agreement.
[7] In the summer of 2010, after his departure from Mann Engineering, Mr. Desai founded the defendant Certified Business Systems (“CBS”) in partnership with Mr. Les Woods. CBS is a competitor of the plaintiffs and provides energy management and mechanical services. The defendant DCL Engineering Limited (“DCL Engineering”) is Mr. Desai’s company.
[8] Mr. Perera and Ms. Yu are former employees of Aris and Mann Engineering, respectively. As stated above, they left the plaintiffs’ employment in 2010. Ms. Yu left a few weeks before Mr. Desai, and Mr. Perera left a few months after Mr. Desai. Both Ms. Yu and Mr. Perera subsequently worked directly or indirectly for CBS until 2017.
[9] Other employees of the plaintiffs left in 2010 and went to work for CBS, including Eva Truong (administrative role), Tajinder Singh (technician) and Eugene Kuzakor (technician). In addition, Irina Yegay, who worked for the plaintiffs in a bookkeeper role, joined a company related to CBS in early 2011. Ms. Yegay and Ms. Truong later came back to work for the plaintiffs.
[10] In October 2018, the plaintiffs entered into a settlement agreement with Mr. Desai, DCL Engineering, CBS and John Lucic and the action was dismissed against them. Thus, by the time of the trial, the only remaining defendants were Mr. Perera and Ms. Yu.
2. EVIDENTIARY ISSUES
A. Evidence at trial
[11] The plaintiffs only called one witness, James Mann. They also relied on read-ins from the examinations for discovery of Mr. Perera and Ms. Yu. In addition, with the consent of Mr. Perera and Ms. Yu, they seek to rely on the transcript of the examination for discovery of Mr. Desai (both personally and on behalf of DCL Engineering).
[12] Mr. Perera and Ms. Yu did not testify at trial. The only witness called by the Defendants was Emmanuel Efraimadis, the CEO of the Complete Group of Companies, which is the current employer of both Mr. Perera and Ms. Yu. Mr. Efraimadis joined CBS in 2011 in a sales role. He left CBS in 2017 and started his own company, Complete Energy Solutions (“CES”). Mr. Perera and Ms. Yu left CBS a few days after Mr. Efraimadis and joined CES. Mr. Singh and Mr. Kuzakor also joined CES.
B. Admissibility of the evidence given on the examination for discovery of Vipul Desai
[13] As stated above, Mr. Desai was originally a defendant in this action. As such, he was examined for discovery in April 2015, both in his personal capacity and as a representative of the defendant DCL Engineering.
[14] During the trial, the plaintiffs read into evidence as part of their case excerpts from the examinations for discovery of Mr. Perera and Ms. Yu. When they indicated their intention to also read in excerpts from the examination for discovery of Mr. Desai, I questioned whether this was allowed under Rule 31.11 of the Rules of Civil Procedure. We adjourned early on that day so that counsel could look into the issue and make submissions the following morning. Before we adjourned, counsel for the Defendants advised that the Defendants did not object to the admissibility of Mr. Desai’s discovery evidence.
[15] The following day, counsel for the plaintiffs asked that argument on this issue be deferred to the closing submissions. The entire transcript of the examination for discovery of Mr. Desai was read into evidence, subject to subsequently being ruled admissible.
[16] Rule 31.11(1) of the Rules of Civil Procedure reads as follows:
At the trial of an action, a party may read into evidence as part of his or her own case against an adverse party any part of the evidence given on the examination for discovery of,
(a) the adverse party; or
(b) a person examined for discovery on behalf or in place of, or in addition to the adverse party, unless the trial judge orders otherwise,
if the evidence is otherwise admissible, whether the party or other person has already given evidence or not.
[17] The plaintiffs argue that Mr. Desai’s discovery evidence is admissible under Rule 31.11(1)(b) as he is a party “in addition to the adverse party”. In the alternative, the plaintiffs argue that Rule 31.11(1)(b) allows the judge to order otherwise.
[18] A similar situation arose in Cain v. Peterson, 2005 CanLII 38122 (Ont. S.C.J.). Justice Dambrot analyzed the issue as follows:
[11] I begin with the obvious – the language of Rule 31.11(1), excluding paragraph (b), is clear and unambiguous, and simply does not permit the plaintiff to read in the discovery answers of a defendant who is not a participant at trial against another defendant who is. In addition, in my view the reference to paragraph (b) of the Rule does not assist the plaintiff. The reference to persons discovered “on behalf or in place of, or in addition to the adverse party” corresponds to the categories of persons who may be discovered as provided by Rule 31.03(1). That rule permits certain persons to be examined “on behalf of” a corporation, partnership or sole proprietorship. It permits certain persons to be examined “in place of” a person under disability. Finally, and of significance here, it permits an assignor, a trustee in bankruptcy or a nominal party to be examined “in addition to” certain parties. It is plain that when Rule 31.11(1) refers to persons discovered “on behalf or in place of, or in addition to the adverse party”, it is this limited category of persons to which it has reference, and not simply another defendant in the action.
[12] I see no escape for the plaintiff from the clear language of the Rule. It simply does not permit him to read in the evidence of Mr. Allan and Mr. Beer against Ms. Peterson. Nor do I see any unfairness in this result. The use of a party’s prior statements in evidence against them is commonplace in our law. The need for a Rule to govern such use in the case of discovery flows, presumably, from the compulsory nature of discovery. The use of one defendant’s prior statements against another, on the other hand, offends the rule against hearsay. The strictures of that rule may, of course, be relieved against by application of the modern principled approach to the admissibility of hearsay. In this case, such a basis for admissibility was not advanced, and no effort was made to satisfy its prerequisites. The mere fact that the reading in of the evidence would not prejudice Ms. Peterson, assuming that to be the case, is not good enough.
[19] I agree with Justice Dambrot’s analysis. Mr. Desai is not “a person examined for discovery […] in addition to the adverse party” within the meaning of Rule 31.11.(1)(b).
[20] The plaintiffs attempt to distinguish Cain v. Peterson on the basis that the defendant in that case was self-represented at trial. However, the fact that the defendant was self-represented does not have any impact on the analysis of Justice Dambrot and his conclusion that Rule 31.11(1) does not permit the plaintiff to read in the discovery answers of a defendant who is not a participant at trial against another defendant.
[21] Rule 31.11(6) provides that the evidence given on an examination for discovery by “a person” can be read into evidence in other limited circumstances:
Where a person examined for discovery,
(a) has died;
(b) is unable to testify because of infirmity or illness;
(c) for any other sufficient reason cannot be compelled to attend at the trial; or
(d) refuses to take an oath or make an affirmation or to answer any proper question,
any party may, with leave of the trial judge, read into evidence all or part of the evidence given on the examination for discovery as the evidence of the person examined, to the extent that it would be admissible if the person were testifying in court.
[22] While Rule 31.11(6) applies to a broader range of persons than Rule 31.11(1), none of the conditions in subparagraphs (a) to (d) are met. In particular, it was not established that Mr. Desai could not be compelled to attend at the trial.
[23] As noted by Justice Dambrot in Cain v. Peterson, discovery evidence that is not admissible under Rule 31.11 can be admitted pursuant to the modern principled approach to the admissibility of hearsay. The Defendants, who also argued during their closing submissions in favour of the admission of Mr. Desai’s discovery transcript into evidence, submit that this evidence is admissible pursuant to the principled approach to the hearsay rule as it is both necessary and reliable. I reject this submission. The necessity requirement of the principled approach to the hearsay rule may be established where the party seeking admission of the hearsay statement cannot compel testimony from the declarant or where the declarant is unavailable to testify at trial: see R. v. Srun, 2019 ONCA 453 at para. 123 and R. v. Hawkins, 1996 CanLII 154 (SCC), [1996] 3 S.C.R. 1043 at paras. 71-73. Here, there was no evidence whatsoever that Mr. Desai was unavailable to testify at trial or could not be compelled to testify. Therefore, the prerequisites of the principled approach to the hearsay rule are not met.
[24] While the analysis above should lead to the conclusion that the discovery evidence of Mr. Desai is inadmissible, this case presents the unusual situation of both plaintiffs and Defendants, who are all represented by counsel, requesting and consenting to the admission of this hearsay evidence. Any agreement between counsel as to the admissibility of documents is not automatically binding on the trial judge, who remains at all times the gatekeeper of the evidence: see Bruno v. Dacosta, 2020 ONCA 602 at para. 55. However, in the end, I have decided to admit the transcript of the examination for discovery of Mr. Desai in evidence since both sides wish to rely on it and the issue of its admissibility was raised for the first time by me at the end of the plaintiffs’ case.
[25] While I have admitted this evidence and refer to parts of it below, generally speaking, I give it very little weight. Based on my review of the transcript, the reliability and credibility of Mr. Desai’s evidence is limited. I found that Mr. Desai was evasive during his examination. Further, the transcript is replete with improper objections, interference and comments by Mr. Desai’s counsel. In addition, Mr. Desai’s memory of the relevant events appeared to be poor as his answer to numerous questions was that he did not remember. Nevertheless, I refer to Mr. Desai’s evidence when there is no other evidence on a particular point and on other limited occasions. Ultimately, however, it is my view that Mr. Desai’s discovery evidence does not help the plaintiffs’ case, whether it is given a lot of weight or not very much.
C. Drawing of adverse inference
[26] The Defendants ask that I draw an adverse inference from the plaintiffs’ decision not to tender supporting documents and important witnesses, including Ms. Yegay, former employees and former clients of the plaintiffs, and accounting professionals retained by the plaintiffs.
[27] Given the Defendants’ decision not to testify at trial, the question of whether I should draw an adverse inference against the Defendants also arises.
[28] In S.N. Lederman, A.W. Bryant and M.K. Fuerst, The Law of Evidence in Canada, 5th ed. (Toronto: LexisNexis, 2018) at §§6.471-6.472, the law regarding the drawing of adverse inferences in civil cases is summarized as follows:
§6.471 In civil cases, an unfavourable inference can be drawn when, in the absence of an explanation, a party litigant does not testify, or fails to provide affidavit evidence on an application, or fails to call a witness who would have knowledge of the facts and would be assumed to be willing to assist that party. In the same vein, an adverse inference may be drawn against a party who does not call a material witness over whom he or she has exclusive control and does not explain it away. The inference should only be drawn in circumstances where the evidence of the person who was not called would have been superior to other similar evidence. The failure to call a material witness amounts to an implied admission that the evidence of the absent witness would be contrary to the party’s case, or at least would not support it.
§6.472 An adverse inference should be drawn only after a prima facie case has been established by the party bearing the burden of proof.
[29] In Parris v. Laidley, 2012 ONCA 755 at para. 2, the Court of Appeal stated the following with respect to the drawing of adverse inferences:
Drawing adverse inferences from failure to produce evidence is discretionary. The inference should not be drawn unless it is warranted in all the circumstances. What is required is a case-specific inquiry into the circumstances including, but not only, whether there was a legitimate explanation for failing to call the witness, whether the witness was within the exclusive control of the party against whom the adverse inference is sought to be drawn, or equally available to both parties, and whether the witness has key evidence to provide or is the best person to provide the evidence in issue.
[30] Former clients and employees of the plaintiffs were equally available to both parties, and I decline to draw an adverse inference with respect to them. Ms. Yegay (the plaintiffs’ bookkeeper) and the plaintiffs’ accountant would be assumed to be willing to assist the plaintiffs. In my view, no legitimate explanation was provided by the plaintiffs for failing to call these witnesses. However, these witnesses could also have been called by the Defendants and, in fact, Ms. Yegay was on the Defendants’ witness list (although she was not called as a witness in the end).
[31] Ultimately, and as explained in more detail below, I find it unnecessary to draw an adverse inference against the plaintiffs because they have failed to discharge their burden of proof on the issues with respect to which an adverse inference could be drawn. The absence of direct, non-hearsay evidence is fatal to the plaintiffs’ case on many issues raised in this action.
[32] As for the Defendants’ failure to testify at trial, I decline to draw an adverse inference against them in the particular circumstances of this case. I find that there was a reasonable basis for their position that the plaintiffs had failed to prove their case on a balance of probabilities and that, as a result, the Defendants did not need to testify and could rely, among other things, on the evidence and explanations provided during their examinations for discovery which were read in by the plaintiffs. A similar situation arose in Insurance Corporation of British Columbia v. Mehat, 2018 BCCA 242, where the British Columbia Court of Appeal stated the following:
[98] However, there is merit to the point that the defendants were entitled to take the position that there was insufficient evidence for the plaintiff to succeed, and that it was therefore unnecessary for the defendants to call evidence.
[99] The Mehats advanced arguments, ultimately successful, that ICBC’s evidence fell short of establishing that Mrs. Mehat was not the driver and therefore she made a false statement to the insurer. ICBC had the burden of proof. It was open to the Mehats to elect not to call evidence in their defence.
[100] The Mehats took a risk that the judge might have applied an adverse inference by their failure to call evidence of Mrs. Mehat in particular, but the judge was not obliged to draw an adverse inference.
[101] It cannot be said that the defendants failed to provide a reasonable explanation as to why they did not call evidence, when their explanation was that there was no case to meet and the judge accepted that argument. In my view, this was within the judge’s discretion and he made no palpable and overriding error in deciding not to draw an adverse inference against the Mehats.
[33] There are risks associated with the position taken by the Defendants and some of them materialized with respect to Mr. Perera (but not Ms. Yu), as set out below. However, I am of the view that this position could legitimately be taken in this case and, as a result, the outcome of this action rests on a straight application of the burden of proof, not on the drawing of adverse inferences one way or the other.
[34] I now turn to the issue of the liability of the Defendants.
3. LIABILITY ISSUES
[35] The plaintiffs argue that the Defendants breached their employment agreements, their fiduciary duties, their implied duties of loyalty, fidelity and good faith, and that their conduct amounted to conversion. They also submit that Mr. Perera intentionally destroyed relevant evidence and that an adverse inference should be drawn against him.
[36] I review below the relevant evidence with respect to the liability issues.
A. Evidence on liability issues
a. The Defendants’ employment agreements
i. Agreements entered into by Mr. Perera
[37] Mr. Perera commenced employment with Aris and its affiliates on August 5, 2008 as Service and Construction Manager. His annual salary was $75,000.
[38] Mr. Perera signed an offer of employment from Aris on August 5, 2008 (“Perera Employment Agreement”). The Perera Employment Agreement describes Mr. Perera’s duties as follows:
- Duties: Your duties as Construction Manager will consist of:
3.1 Construction Management, HVAC Equipment Installation
3.2 Service support
3.3 Commissioning
3.4 DDC [Direct Digital Control] and Engineering support, drawing review as required;
3.5 Management of schedule and cost for projects as issued to you by management;
3.6 Service Calls, and on call as required to perform required duties;
3.7 Travel to Job Sites;
3.8 Organization of all in-house documentation pertaining to Construction and Service;
and such other tasks as Aris may assign from time to time. Aris may from time to time assign new duties to you, relieve you of duties you have been performing and change the person to whom you report. You will devote your full work time and attention to your duties and while you are a [sic] Aris employee you will act in a good faith manner with a view to protecting and promoting its interests. You will not, while you are employed by Aris, provide to any other person service or services the same or substantially the same as the work you perform for Aris. You will promptly disclose to Aris all business opportunities in its fields of endeavor that come to your attention in the course of your employment.
[39] The Perera Employment Agreement also contains a number of restrictive covenants:
- Competition and Confidentiality:
You recognize that:
11.1. Aris’s business focuses on but is not restricted to providing “energy management retrofits, engineering, installation and monitoring” particularly suited to upgrading or replacing existing building equipment that is comprised of direct digital controls (DDC), boilers, chillers, fans, pumps and software installed in multi-residential, commercial and/or industrial buildings in Ontario (the “Mann Group Business”);
11.2. The Mann Group Business is highly competitive;
11.3. As a result of its substantial experience in the Mann Group Business and substantial investments of financial and other resources, Aris has acquired and developed and continues to acquire and develop a body of specialized knowledge, business and technical methods and related computer software, templates and designs (referred to herein as “Mann Group Trade Secrets and Know How” [sic]
11.4. The Mann Group Trade Secrets and Know How are core business assets of the [sic] Aris and if they were made available to its competitors or clients or prospective clients, the viability of Aris as a profitable enterprise would be jeopardized;
11.5. During the periods provided for in section 12, you will not directly or indirectly:
a) Disclose, copy or make use of Mann Group Trade Secrets and Know How other than in the course of your employment and as authorized by Aris;
b) Induce or assist any person who is an employee of or service provider to a member of the Mann Group to terminate or change the terms and conditions on which the person provides service or services;
c) Communicate with any client or prospective client of a member of the Mann Group with a view to obtaining employment or providing services;
d) Provide services or have any direct or indirect interest or concern (be it as principal, beneficiary, director, shareholder, partner, nominee, executor, trustee, agent, servant, employee, independent contractor, supplier, consultant, lender, financier or in any other capacity whatever) to a client or prospective client of a member of the Mann Group;
e) Communicate for any purpose with a competitor of a member of the Mann Group.
11.6. For the purposes of this Agreement, a person shall be a client of a member of the Mann Group if at the time in question or within the preceding 24 months a member of the Mann Group has provided goods or services to the person and a person shall be a prospective client if within the preceding 6 months a member of the Mann Group has made a proposal for provision of goods or services or received from the person a request for a proposal, invitation to bid or similar document provided that during the post-employment period referred to in section 12.4, a person shall not be a client or prospective client unless:
a) the person’s chief place of business or the site of the building or other project in question is within the Province of Ontario;
b) the goods or services in question relate to the Mann Group Business.
11.7. For the purposes of this Agreement, a person shall be a competitor of a member of the Mann Group if the person offers to supply goods or services that a third party, acting reasonably, could determine are the same as or substitutable for goods or services supplied by a member of the Mann Group provided that during the post-employment period referred to in section 12.4, a person shall not be a competitor unless:
a) the person's chief place of business is within the Province of Ontario;
b) the person supplies goods or services which relate to the Mann Group Business.
- Periods of Restriction:
12.1. The obligations provided for by section 11 shall be in full force and effect throughout the term of your employment with a member of the Mann Group.
12.2. The obligations provided for by section 11.5.(a) shall also be in full force and effect for the period ending 5 years after your employment has terminated. During the term of your employment and the ensuing 6 months, if any use of Mann Group Mann Group [sic] Trade Secrets and Know How other than on behalf of a member of the Mann Group comes to your attention, you shall promptly give the president of Aris written notice of the particulars of which you are aware.
12.3. The obligations provided for by section 11.5.(b), 11.5.(c) and 11.5.(d) and 11.5.(e) shall also be in full force and effect for the period ending 1 year after your employment has terminated.
- Acknowledgement that Restrictions Reasonable: The restrictions contained in sections 11 and 12 are believed to be reasonable and not to impose a greater restraint than reasonably necessary to protect the good will and other business interests of members of the Mann Group. However, if it is determined otherwise by a court of competent jurisdiction, these restrictions shall be adjusted to the extent necessary to make them reasonable and not to impose a restraint that is greater than necessary to afford reasonable protection of the good will and other business interests of members of the Mann Group.
[40] The term “Mann Group” is defined in the opening paragraph of the Perera Employment Agreement as including Aris and its affiliates, which are described as follows: “Mann Engineering Ltd., Cartwright Management Ltd., Gigajoule Research & Development Ltd., etc.”
[41] The Perera Employment Agreement attaches the “Aris Employee Handbook” (“Aris Handbook”). The Aris Handbook deals with a number of issues, including sick days policy, vehicle policy, email policy, laptop policy, etc. The Aris Handbook states the following with respect to “Company Purchases and Expense Reimbursement”:
All company purchases must have a valid company purchase order (PO) number issued from Irina. All purchases over $200.00 require a PO or written approval from Management (James or Vipul). This includes car repairs for company vehicles over $100 and entertainment expenses, etc.
Service work where the costs are passed on to the client do not require approval from Management. Please ensure the materials purchased are not a stock item.
Construction projects require a budget to charge against and as long as the project is under budget, the material may be purchased without Management approval.
All office supplies, IT equipment, computers printers, routers and computer hardware, software and accessories must be purchased through Irina with our standard suppliers and must be budgeted.
Exceptions to this policy are; [sic]
Minor expenses less than $200 that would normally be paid for by an employee and submitted on an expense form. The maximum expense allowed without written approval or a PO number is $200.00
Please note that failure to comply with the above policy may result in rejection of the expense and/or reimbursement, at the discretion of management. If the item is invoiced to the company, then the invoice may not be paid at the discretion of Management.
[42] The Aris Handbook also states the following:
No employee shall offer discounts from Aris’s published price list as revised from time to time or vary the terms of any agreement with a client without the prior written consent of Aris’s president; or make any commitment to a client not authorized by Aris’s president.
[43] In addition to the Perera Employment Agreement, Mr. Perera entered into an Intellectual Property Agreement (“IPA”) with Mann Engineering effective August 5, 2008. The IPA provides for an obligation not to disclose confidential information. It states, in part:
- Definitions. In this Agreement:
(a) “Confidential Information” means all information disclosed by one party to the other that contains Mann Engineering customer information, contact lists, phone numbers, client databases, software, energy audits, sequences of operation, AutoCad drawings, Engineering details, equipment lists or DDC points lists but does not include information that: (i) is already known to the party to which it is disclosed; (ii) is or becomes part of the public domain without breach of this Agreement; or, (iii) is obtained from a third party that has no obligation to keep confidential to the parties to this Agreement.
- Confidential Information. The parties may disclose Confidential Information one to another to facilitate performance of this Agreement. Each party will safeguard and not disclose Confidential Information received from the other party, except to those of the receiving party’s personnel who have a need to know and an obligation to protect it.
ii. Agreements entered into by Ms. Yu
[44] Ms. Yu commenced employment with Mann Engineering and its affiliates on June 27, 2005. Her starting annual salary was $37,500. At the time of her departure in 2010, she was Senior Project Manager and her salary was approximately $75,000.
[45] Ms. Yu signed an offer of employment from Mann Engineering on June 27, 2005 (“Yu Employment Agreement” and, together with the Perera Employment Agreement, “Employment Agreements”). The Yu Employment Agreement describes Ms. Yu’s duties as follows:
- Duties: Your duties will consist of:
3.1 Project engineering and execution;
3.2 Engineering, including preparing ACAD drawings and specifications as required;
3.3 Energy Audits;
3.4 DDC Engineering, programming, ACAD drawing preparations as required by the job;
3.5 Monitoring of various buildings through automation system as required;
3.6 Management of schedule and cost for projects as issued to you by management;
3.7 On call as required to perform required duties;
3.8 Organization of all in-house documentation pertaining to engineering, service and monitoring;
and such other tasks as Mann Engineering may assign from time to time. Mann Engineering may from time to time assign new duties to you, relieve you of duties you have been performing and change the person to whom you report. You will devote your full work time and attention to your duties and while you are a Mann Engineering employee you will act in a good faith manner with a view to protecting and promoting its interests. You will not, while you are employed by Mann Engineering, provide to any other person service or services the same or substantially the same as the work you perform for Mann Engineering. You will promptly disclose to Mann Engineering all business opportunities in its fields of endeavor that come to your attention in the course of your employment.
[46] Sections 11, 12 and 13 of the Perera Employment Agreement reproduced above are also contained in the Yu Employment Agreement (except that the references to Aris are replaced by references to Mann Engineering).
[47] The definition of the term “Mann Group” is not the same in the Yu Employment Agreement as in the Perera Employment Agreement. It is defined as including Mann Engineering and its affiliates, which are described as follows: “Mann Construction Services Ltd., Cartwright Management Ltd., etc.”
[48] The Yu Employment Agreement attaches the “Mann Engineering Employee Handbook”. The Mann Engineering Employee Handbook is not as detailed as the Aris Handbook attached to the Perera Employment Agreement. However, it contains the following clause, which is similar to the clause in the Aris Handbook reproduced above:
- No employee shall:
1.1 Offer discounts from Mann Engineering’s published price list as revised from time to time or vary the terms of any agreement with a client without the prior written consent of Mann Engineering’s president; or
1.2 Make any commitment to a client not authorized by Mann Engineering’s president.
[49] Like Mr. Perera, Ms. Yu entered into an IPA with Mann Engineering effective June 27, 2005. Sections 1(a) and 6 of Mr. Perera’s IPA reproduced above are also contained in the IPA signed by Ms. Yu, except that the definition of “Confidential Information” in section 1(a) of Ms. Yu’s IPA does not contain “energy audits”, “AutoCad drawings” and “Engineering details”.
b. Events leading to the Defendants’ departure from the plaintiffs’ employment
[50] In the spring of 2010, Ms. Yu asked to be laid off. The engineering work had slowed down, and Mr. Mann agreed to do a temporary layoff in early May 2010.[^1] When he later called her back to work, she advised him that she had moved on with other opportunities. In fact, Ms. Yu was working for DCL Engineering and CBS. The work she did for CBS was senior mechanical engineering and project manager.
[51] On August 20, 2010, Mr. Perera advised Mr. Mann that two technicians working for Aris, Messrs. Singh and Kuzakor, had submitted their resignation. Mr. Perera stated the following in his e-mail:
TJ and Eugene have given their resignation and their last day to be 3rd of September. I had long talk with both them and I am unable to convince them to stay with us. Both of them want to get in to [sic] commercial Refrigeration and air conditioning and we do not do this type of work or limited and not enough to keep both of them busy. Also one of other concerns they had was not having enough work during winter as they have suffered for past 3 to 4 years.
I have excepted [sic] their resignations.
[52] According to Mr. Mann, Mr. Singh and Mr. Kuzakor were Aris’ best technicians.
[53] On September 2, 2010, Lidia Serebriakova, the property manager for York Condominium Corporation #86 (“YCC 86”), sent a letter to Mr. Perera giving 60 days’ notice of YCC 86’s intention to terminate its contract with Aris. Mr. Perera forwarded the notice to Mr. Mann. Mr. Mann inquired as to why YCC 86 was terminating its contract with Aris. Mr. Perera responded:
They have changed the management and it might be the reason, I will talk to het [sic] and let you know.
[54] On September 7, 2010, Mr. Perera sent his letter of resignation to Mr. Mann, effective September 24, 2010. On the same day, Mr. Mann sent the following e-mail to Mr. Perera:
We accept you [sic] letter of resignation and we require you to spend the next few weeks handing off to Fred as he has been promoted to Service Manager.
I will notify Mark from Applied Energy that you will be tied up with your hand over meetings and I will accompany Harry on the factory tour.
[55] The person who was promoted to replace Mr. Perera as Service Manager, Fred, was a technician at Aris.
[56] The second paragraph of Mr. Mann’s e-mail relates to a business trip in France and Germany on which Mr. Perera was scheduled to go with a client. This was a trip that was organized and largely paid for by Applied Energy. After receiving Mr. Mann’s e-mail, Mr. Perera advised Mr. Mann that Harry was not available for the tour, and that he had invited Ms. Serebriakova instead. Mr. Mann asked: “didn’t she just fire us?”, and Mr. Perera confirmed by e-mail that she did. Mr. Mann does not think that he responded to Mr. Perera’s e-mail.
[57] Mr. Perera went on the trip with Ms. Serebriakova and spent little or no time working on transition, as requested by Mr. Mann. Mr. Mann’s evidence was that he did not take any concrete steps to stop Mr. Perera from going on the trip because he was too busy and he was not aware that Mr. Perera was still going to go on the trip until after Mr. Perera had left for Europe.
[58] According to Mr. Perera, after he left Aris, he worked for his own company, Damha Heating and Cooling (“Damha”), which did work for CBS as a subcontractor. The two Aris technicians who resigned effective September 3, 2010, i.e. Messrs. Singh and Kuzakor, worked for Mr. Perera at Damha and did work for CBS through Damha. Mr. Perera’s evidence during his examination for discovery was that he contacted Messrs. Singh and Kuzakor to ask them to come and work for him after they left Aris.
[59] In contrast, Mr. Desai’s evidence was that he hired Mr. Perera to work for CBS as operations manager. He also stated that Mr. Singh came to work for CBS “sometime end of 2010”, and that it is Mr. Singh who approached CBS to work there. While Mr. Desai confirmed that Mr. Kuzakor also came to work for CBS, he could not remember when he started with CBS.
[60] As stated above, Eva Truong and Irina Yegay also left the plaintiffs’ employment in that general time period. Mr. Desai’s evidence was that Ms. Truong started working for CBS sometime in 2010, and Ms. Yegay started working for a company related to CBS sometime in 2011.
[61] Mr. Efraimadis’ evidence was that, in their role at CBS, Mr. Perera and Ms. Yu were not “customer interfacing”.
c. E-mails located after the Defendants’ departure
[62] It was Mr. Mann’s evidence that the computer returned by Mr. Perera when he left Aris’ employment had been wiped out and had nothing on it.[^2] Towards the end of 2010, Mr. Mann, with the help of an IT consultant, conducted a review of Mr. Perera’s e-mails that had been backed up on the plaintiffs’ server. A number of relevant e-mails were discovered. They are summarized below.
[63] On August 16, 2010, Ms. Truong sent an e-mail to Mr. Perera, who then forwarded the e-mail to his personal Gmail address. The e-mail attached the contracts between Aris and Cando Property Management Ltd. (“Cando”) for various buildings. When asked on discovery why he sent that e-mail with the attached contracts to his personal e-mail address, Mr. Perera responded that he could not recall why he sent that e-mail to himself.
[64] Mr. Desai’s evidence was that Cando became a client of CBS at the end of 2010 or early 2011.
[65] On August 20, 2010, Mr. Perera forwarded to his personal e-mail address an e-mail dated October 21, 2008 sent by Mr. Mann to a number of employees. The e-mail’s subject line was “New Passwords”. The e-mail stated, in part:
Everyone,
Here are revised new passwords for ALL DDC sites - Reliable and KMC. Please do NOT post this information anywhere that is visible.
This information must be kept confidential !!
Internal Passwords (for in-house use only)
Clients are to get the above L1 password only unless approved by Vipul or James. The Aris1 password (or any other) is not to be released without permission from Vipul or James.
High Level Passwords
L5 and L6 passwords are strictly controlled and are not released to anyone without approval from Vipul or James.
[66] This e-mail did not include the levels 5 and 6 passwords. The level 6 password was known as the master password as it allowed someone to block all passwords or change them. Mr. Perera stated during his examination for discovery that he could not recall why he sent this e-mail to his personal e-mail account.
[67] On August 26, 2010, Mr. Perera forwarded again to his personal Gmail address the October 21, 2008 e-mail from Mr. Mann about new passwords reproduced above, but this time he wrote the master password in the forwarding e-mail. Again, Mr. Perera could not recall why he sent this e-mail to his personal e-mail account. He stated during his examination for discovery that the master password was “no good to me.”
[68] There is no evidence that the master password or that any of the other passwords were used by Mr. Perera or anyone outside of the plaintiffs. There is also no evidence that Mr. Perera provided passwords to Ms. Yu or anyone else.
[69] On August 23, 2010, Mr. Perera sent an e-mail to Ms. Truong with the subject line: “proposal Trent university”. A few minutes later, he forwarded the same e-mail to his personal Gmail address. The e-mail attached a document entitled “Mechanical and Plumbing Service Contract”, which was an unsigned proposal prepared by Aris for Trent University dated August 19, 2010. Again, on discovery, Mr. Perera could not recall why he sent that e-mail to his Gmail address. He suggested that he “must have accidentally sent it to my email.” When asked whether all these e-mails sent to his personal e-mail address were “accidents”, Mr. Perera responded that it was possible and he did not know.
[70] On September 9, 2010, Mr. Desai, using a DCL Engineering e-mail address, sent to Mr. Perera’s personal Gmail address a copy of Aris’ contract with Balnar Management Ltd. (“Balnar”). Mike Balnar of Balnar had sent a copy of the contract to Mr. Desai. Mr. Balnar’s e-mail to Mr. Desai read as follows:
Vipul,
This may help you in preparation of our September 16th meeting.
Please have your contract ready to sign.
And, we will discuss solar.
[71] On September 10, 2010, Mr. Perera forwarded the contract to Ms. Truong’s personal Yahoo address and stated the following:
please work on the proposal on new formatt [sic] and forward to me please, alos [sic] I have attached CBS (new company) letter head.
Ms. Truong responded that no letterhead was attached, and Mr. Perera replied that Mr. Desai would insert the letterhead.
[72] In the evening of September 10, 2010, Ms. Truong, using a personal Rogers e-mail address, sent a document to Mr. Perera’s Gmail address and stated: “I didn’t change the term and condition portion. Cause I thought Vipul will have a brand new one.” On Saturday, September 11, 2010, Mr. Perera sent the following e-mail to Mr. Desai at its DCL Engineering e-mail address, copying Ms. Yu at her Gmail address and Ms. Truong at her Mann Engineering e-mail address:
Vipul,
please find attached Balnar maintenece [sic] contract, need to proof read and insert new letter head (CBS), including terms and conditions.
[73] The attached document is a “Standard Direct Digital Control & Mechanical Maintenance Contract” to Balnar prepared by CBS and dated September 10, 2010. The document is on Aris’ letterhead. The document indicates that the proposal is submitted by Mr. Perera for CBS, and that the effective start date is October 1, 2010.
[74] Mr. Desai’s evidence was that after he left Mann Engineering, he sent an e-mail to his contacts announcing that he was no longer associated with Mann Engineering and providing his new contact information. Balnar approached him after he sent that e-mail. Mr. Desai stated that Balnar became a client of CBS “[s]ometime end of 2010”.
[75] Mr. Perera gave the following evidence during his examination for discovery regarding this chain of e-mails:
Q. Okay. To be clear, did you know that Mr. Desai was working for Certified Building Systems on September the 11th, 2010?
A. Prior to leaving or after I left?
Q. The day that you wrote this email to Mr. Desai ---
A. Probably I’m aware of that he’s working. That’s why if he says he is, should be. I’m not denying it.
Q. Okay. So why are you sending an email from your personal email address attaching an Aris contract to Mr. Desai who’s working for a competitor?
A. What do you mean “competitor”?
Q. He’s working for somebody other than Mann Engineering. Mann Engineering wants to take the -- this is about the Balnar contract that had previously been a contract with Aris.
A. Right.
Q. And now if we look a few pages back, on the front page of the contract, it says this contract is prepared by CBS. So my question is why are you sending this document?
A. I may have sent it. I don't know. I can’t recall why I send it. I can’t remember.
Q. Do you know sitting here today what you mean when you say, “need to proofread and insert new letterhead CBS, including terms and conditions”?
A. Whatever I said that time. This is like five years ago you’re asking me a question. I don’t even recall. It’s an email going back and forth about the contract, so what it is. I don’t know. I’m an employee. I just send that email. Okay, went. That’s what it is.
Where are we going with this anyway?
[76] On September 11, 2010, Mr. Perera sent another e-mail to his personal Gmail account that contained a list of e-mail addresses, including clients’ e-mail addresses. Again, Mr. Perera failed to provide an explanation as to why he sent that e-mail to his personal e-mail account. He stated the following during his examination for discovery:
Q. Can you tell me why you sent a copy of a client list?
A. This client list to myself?
Q. Yes. It is 22 pages.[^3]
A. I can’t really recall why I send this one. No, no. Are you kidding me? Are you kidding me? Why do I need this? What am I going to do with it?
Q. But it was sent, so ---
A. Yes, it was sent, okay. But what am I to – it’s a kind of joke to me.
Q. You think it’s a joke?
A. It is a joke, because I don’t ---
Q. It’s 22 pages.
A. Yes, so what am I doing with this? What do I do with that? This is not my one is -- am I sending -- oh, come on.
[77] In addition to the e-mails set out above, Mr. Mann produced a screenshot of a WorldClient window (“Server Screenshot”). According to Mr. Mann, the Server Screenshot shows e-mails going in and out of the plaintiffs’ e-mail server. Mr. Mann stated that e-mails generated by automation systems installed at client sites, such as the daily test for a building, were directed through the plaintiffs’ e-mail server to designated persons for monitoring purposes. The Server Screenshot shows three e-mail addresses that appear to be associated with Ms. Yu: one Gmail address, one DCL Engineering e-mail address, and one CBS e-mail address. The right-hand side of the document appears to show an e-mail sent from Ms. Yu’s Gmail address to Ms. Yu’s DCL Engineering e-mail address on November 1, 2010 at 1:42 p.m. containing the daily test for a building. The building in issue belongs to Balnar, who was no longer a client of the plaintiffs on November 1, 2010. Mr. Mann’s interpretation of this document is that it shows that an alarm generated by the automation system at the Balnar building was being directed through the plaintiffs’ e-mail server to Ms. Yu’s e-mail addresses at CBS or DCL Engineering.
[78] Mr. Mann was unable to fully explain the contents of the Server Screenshot during his testimony or the presence of Ms. Yu’s e-mail addresses. In response to a question, he said that he would have to “dig deeper” to provide an explanation. Mr. Mann also did not know “how the routing was happening” – whether it was in the server or in the automation system at the building – and why the plaintiffs were still receiving information about a building that they were no longer servicing. He acknowledged that the automation system belonged to the client.
[79] I find that Mr. Mann’s evidence about the Server Screenshot was largely based on speculation. The plaintiffs did not call any witness who had the required technical knowledge to adequately explain the contents of the Server Screenshot and what it meant.
[80] As a result of the plaintiffs’ failure to adequately explain and prove the meaning of the Server Screenshot, I decline to draw any inferences from it.
B. Breaches of the Employment Agreements and IPAs
a. Confidentiality obligations
[81] The plaintiffs submit that the Defendants breached their confidentiality obligations under their respective Employment Agreements and IPAs.
[82] Section 11.5(a) of the Employment Agreements provides that the Defendants will not disclose, copy or make use of “Mann Group Trade Secrets and Know How” other than in the course of their employment and as authorized by Aris or Mann Engineering. Section 12.2 provides that this obligation remains in force for a period of five years after the end of the Defendants’ employment.
[83] “Mann Group Trade Secrets and Know How” is defined in section 11.3 as “a body of specialized knowledge, business and technical methods and related computer software, templates and designs”.
[84] In my view, none of the information and documents that Mr. Perera forwarded to his personal Gmail account fall under this definition. They were not specialized knowledge or methods, or related software, template or design. Further, documents or information that are shared with clients or prospective clients cannot fall within the definition of “Mann Group Trade Secrets and Know How” because section 11.4 of the Employment Agreement states that if the Mann Group Trade Secrets and Know How were to be made available to clients or prospective clients, the viability of Aris/Mann Engineering as a profitable enterprise would be jeopardized. Thus, contracts with clients cannot fall within the definition of Mann Group Trade Secrets and Know How.
[85] However, I find that Mr. Perera breached his obligation under section 6 of the IPA to “safeguard and not disclose Confidential Information received from the other party” when, shortly before his departure from Aris, he forwarded to himself the Cando contracts, the proposal to Trent University and the passwords and master password. In my view, these documents/information fall under the definition of “Confidential Information” set out in section 1(a) of the IPA, which includes, among others, “customer information”. While there is no evidence before me that these documents/information were disclosed to others, I have concluded that Mr. Perera sent them to his personal e-mail account with the intention of potentially using and disclosing them in the future, and that this conduct, in itself, constitutes a breach of his obligation to safeguard the confidential information.
[86] I find that there was no breach in relation to the Balnar contract and the list of e-mail addresses that Mr. Perera sent to himself. The Balnar contract was obtained from Balnar itself and there was no evidence before me that Balnar had an obligation to keep its contract confidential.[^4] The IPA provides that “Confidential Information” does not include information “obtained from a third party that has no obligation to keep confidential to the parties to this Agreement”. With respect to the list of e-mail addresses, I am not satisfied that these e-mail addresses are not part of the public domain (which is excluded from the definition of “Confidential Information”). Further, the list of e-mail addresses that Mr. Perera sent to his Gmail account was not a contact list prepared and used by the plaintiffs.
[87] As for Ms. Yu, there is no evidence before me that she has disclosed, copied or made use of “Mann Group Trade Secrets and Know How”. As stated above, I am not in a position to draw any inferences from the Server Screenshot. Further, there is no evidence before me that could support a finding that Ms. Yu breached her obligations under the IPA.
b. Non-solicitation of employees
[88] Section 11.5(b) of the Employment Agreements provides that the Defendants will not induce or assist any employee of a member of the Mann Group to terminate their employment. Section 12.2 of the Employment Agreements states that this obligation continues for one year after the termination of the employment.
[89] There is no evidence and no suggestion that Ms. Yu induced any employee to leave the plaintiffs’ employment.
[90] The plaintiffs argue that Mr. Perera solicited Messrs. Singh and Kuzakor in breach of this clause. However, the only evidence before me is that Mr. Perera contacted them after they resigned from Aris. In addition, Mr. Desai’s evidence was that Mr. Singh came to work for CBS “sometime end of 2010”, and that it is Mr. Singh who approached CBS. I do not have evidence that Mr. Perera induced Messrs. Singh and Kuzakor to terminate their employment with Aris. While the timing of the resignation of Messrs. Singh and Kuzakor raises suspicion, and while some of the reasons provided for their resignation (e.g., working in commercial refrigeration and air conditioning) may not have been accurate, I find that this is insufficient to meet the plaintiffs’ onus of proving on a balance of probabilities that Mr. Perera induced Messrs. Singh and Kuzakor to terminate their employment with Aris.
c. Non-competition
[91] Section 11.5(c) of the Employment Agreements provides that the Defendants will not directly or indirectly “[c]ommunicate with any client or prospective client of a member of the Mann Group with a view to obtaining employment or providing services”. The definitions of “client” and “prospective client” are set out in section 11.6 of the Employment Agreements, which is reproduced above. Section 12.2 of the Employment Agreements states that this obligation continues for one year after the termination of the employment.
[92] In my view, this clause is a non-competition clause, not a non-solicitation clause. It does not purport to merely restrain the Defendants from soliciting the clients and prospective clients of the Mann Group. Rather, it prohibits all communications “with any client or prospective client of a member of the Mann Group with a view to […] providing services.” These communications are prohibited no matter who approached who. By prohibiting the Defendants from having communications with clients or prospective clients of the Mann Group regarding the provision of services, this clause has the effect of preventing the Defendants from conducting any business with clients or prospective clients of the Mann Group. See H.L. Staebler Company Limited v. Allan, 2008 ONCA 576 (“Staebler”) at para. 46.
[93] Sections 11.5(d) and (e) of the Employment Agreements are also non-competition clauses. They prohibit, respectively, the provision of services to a client or prospective client of a member of the Mann Group, and communications for any purpose with a competitor of a member of the Mann Group. These prohibitions also continue for one year after the termination of the employment.
[94] Restrictive covenants that preclude employees, upon leaving employment, from competing with their former employer are restraints of trade and are presumptively unenforceable. However, a reasonable restrictive covenant will be upheld: see Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6 (“Shafron”) at paras. 15-17.
[95] The absence of payment for goodwill as well as the generally accepted imbalance in power between employee and employer justifies more rigorous scrutiny of restrictive covenants in employment contracts compared to those in contracts for the sale of a business: see Shafron at para. 23. The general rule is that non-competition clauses in employment contracts (as opposed to non-solicitation clauses) will only be enforced in exceptional circumstances: see Staebler at para. 42.
[96] The validity and reasonableness of a restrictive covenant can be determined only upon an overall assessment of the clause, the agreement within which it is found and all of the surrounding circumstances. The three factors to be considered to determine whether a restrictive covenant is reasonable are: (1) whether the employer had a proprietary interest entitled to protection; (2) whether the temporal or spatial limits are too broad; and (3) whether the covenant is overly broad in the activity it proscribes. See Mason v. Chem-Trend Limited Partnership, 2011 ONCA 344 (“Chem-Trend”) at para. 16.
[97] However, for a determination of reasonableness to be made, the terms of the restrictive covenant must be unambiguous. The reasonableness of a covenant cannot be determined without first establishing the meaning of the covenant. The onus is on the party seeking to enforce the restrictive covenant to show the reasonableness of its terms. An ambiguous restrictive covenant will be prima facie unenforceable because the party seeking enforcement will be unable to demonstrate reasonableness in the face of an ambiguity. See Shafron at para. 27.
[98] A valid clause must clearly advise the former employee which customers are off limits to them. In cases where the specific customers that are not to be solicited have not been clearly identified, restrictive covenants have been found to be ambiguous in their practical implementation and, therefore, unenforceable and void: see Chem-Trend at para. 30 and Stress-Crete Limited v. Harriman, 2019 ONSC 2773 at para. 39.
[99] In my view, the references to clients or prospective clients of “a member of the Mann Group” in clauses 11.5(c) and (d) are ambiguous because the Employment Agreements do not specify clearly who the members of the Mann Group are. The Employment Agreements refer to affiliates of Aris or Mann Engineering, and then include a partial list of entities ending with “etc.” The Employment Agreements refer to Cartwright Management Ltd. and Gigajoule Research & Development Ltd. as affiliates. I note that the unaudited financial statements of Mann Engineering for the fiscal year 2011 also refer to Hay Solar Ltd. as a “related party”, which may or may not be an “affiliate”. There is no evidence before me about the nature of the business conducted by these entities, whether they have clients or prospective clients, and whether the Defendants would have been aware of the identity of all such clients and prospective clients. Given the open-ended nature of the list of affiliates and the fact that sections 11.5(c) and (d) do not clearly identify the specific customers to which the Defendants are prohibited from providing services, I find that these clauses are ambiguous and unenforceable.
[100] Further, the nature of the services that are prohibited under sections 11.5(c) and (d) is either overly broad or ambiguous. The word “services” is not defined in the Employment Agreements, but section 11.6 states that a person shall not be a client or prospective client unless “the goods or services in question relate to the Mann Group Business”. The plaintiffs argue that these words apply to the word “services” in sections 11.5(c) and (d). In my view, however, these words apply to and qualify the words “goods or services” in section 11.6, and are not intended to limit the meaning of the word “services” alone (i.e. not “goods or services”) in section 11.5. Section 11.6 refers to “goods and services” provided by a member of the Mann Group, not by a departed employee. The purpose of section 11.6 is to identify who is a client or prospective client, not to define the scope of services that a former employee can provide to a client or prospective client. In addition, I note that section 11.5(d) prohibits the Defendants from providing services to a client or prospective client as a lender, which is not a service provided by the plaintiffs.
[101] If the qualification regarding “goods and services” in section 11.6 does not apply to the word “services” in section 11.5, then there are no limits on the types of services that the Defendants are prohibited from providing to clients and prospective clients of the Mann Group. To preclude the Defendants from conducting business of any sort with any and all clients and prospective clients of the Mann Group goes well beyond protecting any proprietary interest that the plaintiffs may have: see Staebler at paras. 51, 53.
[102] However, assuming, as argued by the plaintiffs, that the proscribed “services” in section 11.5 are services that relate to the Mann Group Business, then we are confronted to a definition of “Mann Group Business” in section 11.1 that states that the business “focuses on but is not restricted to” a list of activities. This non-exhaustive list of activities adds to the ambiguity of the clause. Thus, the scope of proscribed services is either: (a) unlimited and undefined if the qualification in section 11.6 that services must relate to the Mann Group Business does not apply; or (b) ambiguous if the qualification in section 11.6 that services must relate to the Mann Group Business applies since the definition of Mann Group Business is unrestricted.
[103] In addition to the broad prohibition against providing services to clients and prospective clients, there are other factors supporting a finding that sections 11.5(c) and (d) are unreasonable and overly broad in the activities that they proscribe. There are no exceptional circumstances in this case that would justify enforcing a broad non-competition clause in an employment contract: see Staebler at paras. 42, 55-56. The Defendants did not play an exceptional role in the plaintiffs’ businesses and they did not have exclusive relationships with clients. Sections 11.5(c) and (d) prohibit the Defendants from communicating not only with clients they dealt with, but also clients of entities for which they did not work. I also note that the Employment Agreements and IPAs contain other clauses that protect the interests of the plaintiffs with respect to confidential information, trade secrets and intellectual property.
[104] The reasons set out above apply mutatis mutandis to section 11.5(e) of the Employment Agreements, which I also find to be unenforceable. A prohibition against employees “communicat[ing] for any purpose with a competitor of a member of the Mann Group” is overly broad with respect to the activities that are proscribed.
[105] After conducting the balancing process between the interests of the plaintiffs and the public interest in free and open competition, and considering the Employment Agreements (and related agreements) as a whole and the role of the Defendants in the plaintiffs’ business, I conclude that the complete prohibition on competition for one year is overly broad as well as ambiguous and unworkable in practice with respect to the specific customers to which the Defendants are prohibited from providing services. As a result, the restrictive covenants contained in sections 11.5 (c), (d) and (e) are unreasonable and unenforceable.
C. Fiduciary duty
[106] For a fiduciary obligation to attach to an employee, the employee must occupy a position that contains the power and ability to direct and guide the affairs of the company, and be in a position to exert or exercise some independent power or discretion over the employer’s business: see R.W. Hamilton Ltd. v. Aeroquip Corp. (1988), 1988 CanLII 4527 (ON SC), 65 O.R. (2d) 345 at paras. 20-21 (H.C.J.) and GasTOPS Ltd. v. Forsyth, 2009 CanLII 66153 at para. 80 (Ont. S.C.J.) (“GasTOPS”); aff’d 2012 ONCA 134.
[107] In GasTOPS, Justice Granger identified six criteria that could be used to determine whether a former employee could be classified as a key employee (see para. 83):
a. What were the employee’s job duties with the former employer?
b. What was the extent or frequency of the contact between the employee and the former employer’s customers and/or suppliers?
c. Was the employee the primary contact with the customers and (or) suppliers?
d. To what extent was the employee responsible for sales or revenue?
e. To what extent did the employee have access to and make use of, or otherwise have knowledge of, the former employer’s customers, their accounts, the former employer’s pricing practices, and the pricing of products and services?
f. To what extent was the former employee’s information as regards customers, suppliers, pricing, etc., confidential?
[108] Justice Granger then stated the following at para. 84:
After identifying an employee as “key”, further determining whether that employee is a “fiduciary” is a difficult endeavour. According to James D’Andrea, “generally, a fiduciary is one who is empowered to act on behalf of and for the benefit of another with the ability to affect that other’s interest through the use of discretion” (Employment Obligations in Canada, looseleaf (Aurora Ont.; Canada Law Book 2006)).
[109] In my view, neither Mr. Perera nor Ms. Yu were in a fiduciary position vis-à-vis Aris and/or Mann Engineering. They were not part of Management: only Mr. Mann and Mr. Desai were. Further, they were not in charge of customer relationships and they were not responsible for sales and revenue. The descriptions of their job duties in the Employment Agreements do not contain any broad powers or discretion. In fact, they essentially had no power to decide anything of any significance on their own. Costs of projects were determined by Management, and only Management could approve expenses of more than $200. In addition, Mr. Perera and Ms. Yu could not offer discounts from Aris’s or Mann Engineering’s published price lists or vary the terms of any agreement with a client without the prior written consent of Mr. Mann, and they could not make any commitment to a client not authorized by Mr. Mann. I also note that after Mr. Perera sent his letter of resignation, it was not difficult for Aris to find a replacement as an Aris technician was almost immediately appointed as Service Manager.
[110] Mr. Perera and Ms. Yu were not in a position to exercise any independent power or discretion over the business of Aris or Mann Engineering, and they did not have the power nor the ability to direct and guide the affairs of these companies.
[111] The plaintiffs argue, in the alternative, that non-fiduciary employees may become impressed with fiduciary obligations if they depart with a fiduciary for the purpose of setting up a business in competition with their former employer or if they are caught in the web of the unlawful conduct of the fiduciary: see GasTOPS at para. 97 and Inprotect Systems Inc. v. Davies, 2010 BCSC 1287 at para. 34. They argue that by joining in the business of Mr. Desai, the Defendants aided in Mr. Desai’s breach of fiduciary duties and thereby became fiduciaries themselves.
[112] I reject this argument for the following reasons:
a. Mr. Desai is no longer a defendant in this action, and it has not been established: (1) that he was a fiduciary, and (2) if he was, that he breached any fiduciary obligation. I note that Mr. Desai was providing his services to Mann Engineering and Aris pursuant to a consulting agreement executed by his company, Desai Consulting Limited (the predecessor of DCL Engineering). The last consulting agreement executed by the parties includes non-solicitation provisions, but does not include a non-competition clause. Further, there was no evidence before me that Mr. Desai acted in breach of the non-solicitation provisions in the consulting agreement. Based on the record before me, I am not in a position to find that Mr. Desai has breached any fiduciary obligation. That being the case, I cannot find that the Defendants were “caught in the web of the unlawful conduct” of Mr. Desai.
b. Mr. Perera and Ms. Yu did not depart with Mr. Desai for the purpose of setting up a business in competition with the plaintiffs. Ms. Yu was laid off before Mr. Desai’s consulting contract was terminated, and Mr. Perera left Aris almost four months after Mr. Desai’s departure. Further, Mr. Desai founded CBS in partnership with Mr. Woods, not Mr. Perera and/or Ms. Yu.
[113] Therefore, I hold that the plaintiffs have failed to prove any breach of fiduciary duty on the part of Mr. Perera and Ms. Yu.
D. Implied duties of loyalty, fidelity and good faith
[114] Employees owe their employers a general duty of good faith and loyalty (or fidelity) as an implied term of their employment contract: see Prim8 Group Inc. v Tisi, 2016 ONSC 5662 at para. 15. The employment and post-employment obligations of non-fiduciary employees were explained as follows by the New Brunswick Court of Appeal in Imperial Sheet Metal Ltd. v. Landry and Gray Metal Products Inc., 2007 NBCA 51 at paras. 33-34:
In employment law, the common law and equitable obligations of an employee are cast in terms of a duty to act in good faith, a duty of fidelity and the equitable duty not to breach confidences. A non-fiduciary employee owes the employer a general duty of good faith and fidelity during the currency of the employment relationship. This translates into a duty not to compete with the employer, either directly or indirectly, during the currency of the employment relationship. It also translates into a duty not to disclose “trade secrets” and other “confidential information”. Once the employment relationship ends, the duty of non-disclosure persists. However, confidential information does not include the general skills and knowledge acquired by the employee while working for the former employer. This is true so long as the skill and knowledge is committed to memory and not dependant on the employer’s documentation. Undoubtedly, employees who depart with suitcases of documents, computer files or even a solitary customer list are in breach of their post-employment obligations. Employees who leave with only their personal possessions are better able to defend law suits alleging breaches of confidence. In sum, a former employee is entitled to exploit freely the general skills and knowledge acquired as a result of the employment relationship, so long as that knowledge is a product of his or her memory and unaided by the employer’s documentation.
Leaving aside the employee’s duty to keep confidences, it has to be asked whether there are any common law restrictions preventing an employee from establishing a competitive business or from working for a competitor of the former employer. On this point, the law has long been settled. During the course of their employment, employees are not permitted to compete, directly or indirectly, with their employers. As a general observation, employees who surreptitiously set about to establish a competitive business while continuing to work for their soon-to-be former employer often find it difficult to establish that the duty of fidelity has not been breached. Those who wait until the employment relationship has terminated are more successful in defending a law suit for breaches of the duty of good faith and fidelity. Once the employment relationship ends, the non-fiduciary employee is permitted to engage in fair competition with a former employer. Fair competition has traditionally meant that the employee may, without fear of legal consequences, establish a business that competes directly or indirectly with the business of the former employer. A correlative right is the right of the employee to work for a competitor of the former employer. As well, in both instances, the employee may bring to that business the knowledge and skill acquired while working for the former employer. The right to compete includes the right to solicit the customers of the former employer “whose names and addresses he has learned during the period of his service”. Again, it must be emphasized that former employees cannot make use of printed information compiled by the former employer, including a customer list. The use of the employer’s documentation or confidential information would amount to “unfair competition”. Subject to that limitation, it has to be understood that employers cannot claim a monopoly over their clients or customers. This explains why employees are routinely required by their employers to execute confidentiality, non-competition or non-solicitation agreements. […]
[115] There is no evidence that Ms. Yu breached any duty of loyalty, fidelity or good faith. There is no evidence that she competed with Mann Engineering, either directly or indirectly, while she was an employee. Further, there is no evidence that: (a) she took with her any confidential information of the plaintiffs; or (b) she used any confidential information of the plaintiffs. In particular, there is no cogent evidence that Ms. Yu used any of the plaintiffs’ passwords or that she intercepted e-mail alerts from the plaintiffs’ customers, as alleged by the plaintiffs. As stated above, I am not in a position to draw any inferences from the Server Screenshot. Further, and in any event, the Server Screenshot could not establish that Ms. Yu intercepted e-mail alerts from the plaintiffs’ customers because the Server Screenshot relates to Balnar, which was no longer a customer of the plaintiffs on November 1, 2010 (i.e. the date reflected on the Server Screenshot).
[116] However, it is my view that Mr. Perera has breached his implied duties of loyalty, fidelity and good faith. I find that Mr. Perera was working for a competitor, CBS, during the course of his employment with Aris. The exchange of e-mails between Mr. Perera, Ms. Truong and Mr. Desai on September 9-11, 2010 shows that, while Mr. Perera was still working for Aris, he was doing work for CBS, i.e. preparing a proposal to a customer (Balnar) on behalf of CBS.[^5] The suggestion on the part of Mr. Perera that, when he wrote these e-mails, he did not know that Mr. Desai was no longer working for the plaintiffs has no air of reality in light of the contents of the e-mails, the nature of the attachment (i.e. a proposal from CBS) and the use of personal e-mail addresses by Mr. Perera and Ms. Truong.
[117] I also find that Mr. Perera took with him documentation belonging to his former employer, Aris, for the purpose of potentially using such documentation in competing with Aris. This documentation includes the Cando contracts, the passwords and the proposal to Trent University that Mr. Perera forwarded to his personal Gmail address. I do not accept Mr. Perera’s explanation that he may have forwarded these e-mails to his personal e-mail address in order to complete work from home. Again, this explanation has no air of reality in light of the timing of the e-mails and the exchange regarding the Balnar contract during the same time period, among other things. Further, the answers given by Mr. Perera during his examination for discovery regarding the documentation that he sent to his personal e-mail address, excerpts from which are reproduced above, are evasive, nonresponsive and defensive. Mr. Perera said that he could not recall anything, and he could not provide reasonable explanations. He stated that certain information was not useful to him, which begs the question of why he was sending this information to his personal e-mail account in the first place. His evidence on these points is simply not believable.
[118] The fact that there is no direct evidence that this information was ultimately used does not change my conclusion that Mr. Perera breached his common law duties, but is relevant to other issues, including causation and damages.
[119] However, I reject the plaintiffs’ submission that Mr. Perera took the plaintiffs’ “complete client list”. Mr. Perera forwarded to his personal Gmail address a list of e-mail addresses that he appears to have put together himself, maybe from his e-mail contacts. While the list appears to include the e-mail addresses of some clients, the list also includes e-mail addresses of employees of Mann Engineering, including Mr. Mann, and Mr. Perera’s own Gmail address. There was no evidence before me that this list was a pre-existing document compiled by and belonging to Aris or Mann Engineering and used by them. Further, there was no evidence that these e-mail addresses were confidential. E-mail addresses of businesses or employees are often publicly available.
[120] Finally, I also find that Mr. Perera breached his duties as an employee when he went on a trip with Ms. Serebriakova, the property manager for YCC 86, after Mr. Perera’s resignation and after YCC 86 terminated its contract with Aris. In doing so, he demonstrated insubordination. Mr. Perera had been advised by Mr. Mann that he was required “to spend the next few weeks handing off to” the new service manager. Further, no employee acting in good faith would go on a trip offered to their employer shortly after resigning and bring with them someone who had just terminated their contract with the employer. This is a complete misuse of an opportunity that belonged to the employer.
[121] In light of the foregoing, I conclude that Ms. Yu did not breach her implied duties of loyalty, fidelity and good faith, but that Mr. Perera did breach these duties.
E. Conversion
[122] The tort of conversion involves a wrongful interference with the goods of another, such as taking, using or destroying these goods in a manner inconsistent with the owner’s right of possession. The tort is one of strict liability and, accordingly, it is no defence that the wrongful act was committed in all innocence. See Boma Manufacturing Ltd. v. Canadian Imperial Bank of Commerce, 1996 CanLII 149 (SCC), [1996] 3 S.C.R. 727 at para. 31.
[123] The essential elements for the tort of conversion are: (1) the plaintiff has an immediate right to possession of personal property; (2) the personal property is identifiable or specific; and (3) the defendant takes, uses, or destroys the goods or interferes with the plaintiff’s right of possession: see Del Giudice v. Thompson, 2021 ONSC 5379 at para. 170. Evidence must show or permit an inference to be drawn that the defendant acted in such a way as to deny the plaintiff’s title or possessory right: see BMW Canada Inc. (Alphera Financial Services Canada) v. Mirzai, 2018 ONSC 180 at para. 18.
[124] In determining damages for the tort of conversion, the law treats a conversion as resulting in a “forced sale” of the plaintiff’s chattel, requiring a defendant to pay the market value of the goods at the time of the conversion: see BMW Canada Inc. (Alphera Financial Services Canada) v. Mirzai, 2018 ONSC 180 at para. 26.
[125] The plaintiffs argue that Mr. Perera wrongfully converted the plaintiffs’ trade secrets and know how for his own personal gain. They refer to his use of the Balnar contract and allege that he copied and used confidential information such as client lists, passwords and other contracts belonging to the plaintiffs.
[126] I find that the plaintiffs have failed to establish the tort of conversion. Among other things:
a. The tort of conversion does not apply to information, intellectual or intangible property as such property does not entail a right of possession: see Del Giudice v. Thompson, 2021 ONSC 5379 at para. 172. There are other torts and legal remedies that apply to the misappropriation and misuse of information.
b. Mr. Perera did not take a physical client list with him. As stated above, he forwarded to his Gmail account a list of e-mail addresses that he appears to have put together. While the list appears to include the e-mail addresses of some clients, the list also includes e-mail addresses of employees of Mann Engineering, including Mr. Mann. There was no evidence before me that this was a pre-existing document belonging to Aris or Mann Engineering and used by them. The tort of conversion does not apply to general contact information that is put out in the world to be used: see Del Giudice v. Thompson, 2021 ONSC 5379 at paras. 175-176. The plaintiffs do not have a right of possession over the e-mail addresses of third parties.
c. Mr. Perera did not interfere with any right of possession that the plaintiffs may have with respect to the Balnar contract as the contract was provided to Mr. Desai (who then sent it to Mr. Perera) by Balnar itself.
d. There is no evidence before me that Mr. Perera used or shared in any way the passwords or any of the other materials that he forwarded to his personal e-mail account. In my view, the mere forwarding of this information is insufficient to constitute interference with the plaintiffs’ right of possession or to show conduct directed at denying or negating the plaintiffs’ title or other possessory interest, if any, in this information.
e. In any event, there is no evidence of the “market value of the goods” that are alleged to have been converted: see Genesis Fertility Centre Inc. v. Yuzpe, 2019 BCSC 233 at paras. 234-236.
[127] The plaintiffs rely on Justice Pearlman’s decision in Cruise Connections Canada v. Cancellieri, 2012 BCSC 53. However, this case does not support their position and is distinguishable. As noted in Genesis Fertility Centre Inc. v. Yuzpe, 2019 BCSC at paras. 231-232, Justice Pearlman’s comments on the tort of conversion in Cruise Connections Canada v. Cancellieri were made in the context of his analysis of whether the defendants had committed the tort of civil conspiracy. There was no independent claim for damages for conversion. Further, and in any event, Justice Pearlman found that the defendants in that case had removed customer lists and used the information contained in them to market and sell cruise-related products. This is not the case here. As stated above, what Mr. Perera sent to himself was not a customer list belonging to Aris, and there is no evidence that the information that he sent to himself was subsequently used.
[128] Accordingly, I conclude that the plaintiffs have failed to prove the tort of conversion.
F. Spoliation
[129] The plaintiffs submit that Mr. Perera intentionally destroyed relevant evidence and request that the Court draw an adverse inference against him.
[130] The general principles governing the doctrine of spoliation of evidence were summarized as follows by the Alberta Court of Appeal in McDougall v. Black & Decker Canada Inc., 2008 ABCA 353 (“McDougall”) at para. 18:
Spoliation in law does not occur merely because evidence has been destroyed. Rather, it occurs where a party has intentionally destroyed evidence relevant to ongoing or contemplated litigation in circumstances where a reasonable inference can be drawn that the evidence was destroyed to affect the litigation. Once this is demonstrated, a presumption arises that the evidence would have been unfavourable to the party destroying it. This presumption is rebuttable by other evidence through which the alleged spoliator proves that his actions, although intentional, were not aimed at affecting the litigation, or through which the party either proves his case or repels the case against him.
[131] When the destruction is not intentional, it is not possible to draw the inference that the evidence was destroyed because it would have been damaging to the litigant, but other remedies may be available. Remedial authority for these remedies is found in the court’s rules of procedure and its inherent ability to prevent abuse of process. Remedies may include such relief as the exclusion of expert reports and the denial of costs. See McDougall at paras. 24, 25 and 29.
[132] A finding of spoliation requires that the following four elements be established on a balance of probability (see Nova Growth Corp. v. Kepinski, 2014 ONSC 2763 (“Nova Growth”) at para. 296):
a. the missing evidence must be relevant;
b. the missing evidence must have been destroyed intentionally;
c. at the time of destruction, litigation must have been ongoing or contemplated; and
d. it must be reasonable to infer that the evidence was destroyed in order to affect the outcome of the litigation.
[133] In order to draw a spoliation inference, there must be evidence of a particular piece of relevant evidence that was destroyed because the inference only applies to that particular piece of evidence and not at large: see Nova Growth at paras. 297-298.
[134] In my view, the plaintiffs have failed to prove the required elements of spoliation. They have not established that there was a particular piece of relevant evidence that was missing. The following passage of Nova Growth at para. 314 applies to this case:
The inference requested by the plaintiffs is that some destroyed document would have helped the plaintiffs’ case. Speculating about what might have been destroyed is not good enough for an inference to be raised. There must be a particular piece of evidence that has been destroyed that is relevant. Without knowing that it would not be possible to make any meaningful inference.
[135] The plaintiffs have also not established that the alleged missing evidence was destroyed at a time when litigation must have been contemplated. This action was commenced more than one year after Mr. Perera left Aris’ employment. There is no evidence before me that Mr. Perera was put on notice that the plaintiffs intended to sue him before the action was commenced, or that he should have known that litigation was contemplated for other reasons.
[136] Finally, while Mr. Perera’s failure to produce documents and e-mails in this litigation raises concerns, and while I have found that Mr. Perera is generally not a credible witness, I am not satisfied, based on the evidence before me, that any alleged missing evidence was destroyed in order to affect the outcome of the litigation. Mr. Perera’s evidence was that he does not keep his e-mails and deletes them on an ongoing basis. Without knowing when litigation should have been contemplated and what particular piece of evidence is alleged to be missing, it is not possible for me to find that Mr. Perera should have stopped his regular practice of deleting e-mails and preserve some of them, and that his failure to do so was intentional and for the purpose of affecting the outcome of the litigation. I also note that there was conflicting evidence as to whether Mr. Perera’s computer was reformatted or not. The only evidence that this was done was Mr. Mann’s testimony. Mr. Mann has no expertise with respect to computers.
[137] The plaintiffs rely on the 2006 decision of the Court of Queen’s Bench of Manitoba in Western Tank & Lining Ltd. v. Skrobutan, 2006 MBQB 205. In my view, this case is not authoritative as it was decided a few years before the McDougall decision, it does not apply the governing principles set out in McDougall, and I seriously doubt that the result would have been the same had the McDougall principles been applied.
[138] Accordingly, I decline to draw an adverse inference against Mr. Perera based on the alleged intentional destruction of relevant evidence. However, the plaintiffs are free to raise the issue of the destruction of evidence at the costs submissions stage.
4. CAUSATION AND DAMAGES
A. Evidence regarding causation and damages
[139] Mr. Mann testified that there was a significant drop in revenue for both Mann Engineering and Aris between 2010 and 2011, and a loss of approximately $420,000 in profits. In order to support the plaintiffs’ claim for damages against Mr. Perera and Ms. Yu, Mr. Mann gave evidence with respect to a document entitled “Maintenance / Monitoring Contracts 2010”. This document lists clients and some information for each of them, including the total amount they paid during the 2010 fiscal year for maintenance/monitoring contracts. The total for all clients is $450,161.77. According to Mr. Mann, the contracts reflected in the document are low-margin work, but they are the foundation of the plaintiffs’ relationships with their clients and often bring about requests for other high-margin services, such as emergency and construction services, which generate substantial revenues for the plaintiffs.
[140] According to Mr. Mann, eight clients on this document terminated their contracts or stopped communicating with the plaintiffs in the fall of 2010 or in the first part of 2011. When one adds up the amounts paid by these eight clients, the total is $144,011.10. The eight clients are: Balnar, Cando, YCC 86, York Condominium Corporation #165 (“YCC 165”), Metropolitan Toronto Condominium Corporation #675 (“MTCC 675”), Metropolitan Toronto Condominium Corporation #971 (“MTCC 971”), Toronto Standard Condominium Corporation #1582 (“TSCC 1582”) and Morguard.
[141] In 2011, Mr. Mann asked Ms. Yegay to prepare a document entitled “Total Revenue” showing revenue earned in fiscal year 2010 with respect to the eight clients in question. The first page contains a chart with four types of revenue:
a. retrofit projects, which were construction projects – total of $2,324,409;
b. PM contracts, which were maintenance and monitoring contracts – total of $235,124;
c. service, which relates to service calls not covered by maintenance contracts – total of $291,512; and
d. potential revenue for projects that the plaintiffs were anticipating they would be asked to do, even though there was no formal purchase order yet – total of $400,000.
The “Total Revenue” chart is followed by a number of pages that contain additional charts and handwritten notes of Ms. Yegay that are specific to some of the eight clients and are intended to support the numbers included in the “Total Revenue” chart. The source of these numbers, such as the underlying contracts and purchase orders, were not adduced in evidence.
[142] Mr. Mann indicated that the plaintiffs’ profitability was approximately 30% of revenues. He claims lost profits for a period of 5 years in the amount of $1.5 million. No explanation has been provided as to how this figure was arrived at. Further, when using the different figures mentioned by Mr. Mann and/or found in the documents (figures for revenue and profit, percentage of profitability, 5-year period, etc.), the numbers do not add up to $1.5 million.
[143] During his cross-examination, Mr. Mann confirmed that he had made the deliberate decision not to call clients or former clients as witnesses as he wanted to retain relationships and was trying to mitigate his damages and costs. He stated that the same rationale applied with respect to his decision not to call employees or former employees of the plaintiffs as witnesses.
[144] There is no direct evidence before me that YCC 86, YCC 165, MTCC 675, TSCC 1582 and Morguard became clients of CBS. Mr. Efraimadis’ evidence was that Balnar, Cando and MTCC 971 were Mr. Desai’s clients at CBS. As stated above, Mr. Desai’s evidence was that Cando became a client of CBS at the end of 2010 or early 2011, and that Balnar became a client of CBS “[s]ometime end of 2010”.
[145] When asked during his examination for discovery whether he did work on Balnar buildings through his company on behalf of CBS after his departure from Aris, Mr. Perera’s answer was: “I may have done it.”
B. Findings on causation and damages
[146] In the prior section of these Reasons, I have found that:
a. Mr. Perera breached his obligation under section 6 of the IPA to safeguard and not disclose Confidential Information when, shortly before his departure from Aris, he forwarded to himself the Cando contracts, the proposal to Trent University and the passwords and master password; and
b. Mr. Perera breached his implied contractual duties of loyalty, fidelity and good faith in that: (i) he was working for a competitor, CBS, during the course of his employment with Aris; (ii) he took with him documentation belonging to Aris for the purpose of potentially using such documentation in competing with Aris; and (iii) he went on a trip with Ms. Serebriakova, the property manager for YCC 86, after his resignation and after YCC 86 terminated its contract with Aris, thereby misusing an opportunity that belonged to Aris and failing to work on transition, as directed by Mr. Mann.
[147] While Mr. Perera may have breached duties he owed to the plaintiffs, there is no evidence that these breaches caused any damages to the plaintiffs. In particular, there is no evidence that: (a) Mr. Perera used the information that he forwarded to his personal e-mail account; (b) Mr. Perera solicited clients of the plaintiffs and/or caused clients to terminate their relationship with the plaintiffs and move their business to CBS; and (c) YCC 86 became a client of CBS or Mr. Perera’s company after it terminated its contract with Aris.
[148] The reality of the matter is that Mr. Desai left the plaintiffs, started a new business to compete with the plaintiffs and had communications with some of the plaintiffs’ clients a number of months/weeks before Mr. Perera left Aris. Mr. Desai had a more prominent role within the plaintiffs than Mr. Perera, both in general and with respect to client relationships. While the plaintiffs reached a settlement with Mr. Desai and all the defendants except for the Defendants, they cannot now ignore the role played by Mr. Desai and others, and attempt to assign all the blame to Mr. Perera in the absence of any evidence that he played any role in the decision of some clients to terminate their relationship with the plaintiffs.
[149] As stated above, there is no direct evidence before me that YCC 86, YCC 165, MTCC 675, TSCC 1582 and Morguard became clients of CBS. However, the evidence shows that MTCC 971, Balnar and Cando became clients of CBS.
[150] With respect to MTCC 971, there is no evidence that Mr. Perera had anything to do with MTCC 971 becoming a client of CBS.
[151] With respect to Balnar, the only evidence before me is that Mr. Balnar contacted Mr. Desai at his e-mail address at DCL Engineering, that he sent a copy of Balnar’s contract with Aris to Mr. Desai, and that he asked Mr. Desai to “have your contract ready to sign”. There is no evidence that Mr. Perera communicated with Balnar with a view to providing services or that the assistance that he provided in relation to the preparation of CBS’s proposal to Balnar played any role in Balnar’s decision to terminate its contracts with the plaintiffs and do business with CBS. I also note that there is no evidence that Mr. Desai solicited Balnar as opposed to Balnar reaching out to Mr. Desai after his departure from Mann Engineering.
[152] With respect to Cando, there is no evidence of solicitation by anyone before me. The only evidence is that Mr. Perera forwarded to his personal e-mail account a copy of the contracts between Aris and Cando for various buildings. This does not establish solicitation or any role on the part of Mr. Perera in having Cando move its business to CBS.
[153] In light of the foregoing, the plaintiffs have failed to establish causation between Mr. Perera’s breaches of duties and any damages suffered by the plaintiffs. In any event, the plaintiffs’ evidence on damages was wholly inadequate. As stated above, the plaintiffs’ numbers did not add up and the $1.5 million figure was unexplained. Further, the amount of lost profits claimed by the plaintiffs was largely unsupported. While Mr. Mann stated, without supporting evidence, that the plaintiffs’ profitability was approximately 30% of revenues, he also stated that some of the work performed by the plaintiffs was low-margin. While Mr. Mann attributed the entire drop in profits from 2010 to 2011 to the conduct of the Defendants, it is not possible to reach such a conclusion as drops in profits can be caused by a number of factors. I also note that other employees, notably Mr. Desai, left the plaintiffs in 2010 and competed with them in 2010 and 2011. In addition, there was no evidence supporting the assumption that the plaintiffs would have earned the same revenues from the “lost clients” in 2011 compared to 2010, especially with respect to construction projects and service calls.
[154] While the plaintiffs claim $25,000.00 in damages in relation to costs allegedly incurred to change and reprogram passwords, there is no evidence before me that such costs were incurred and what they consist of.
[155] This is not a case where damages are, by their inherent nature, difficult to assess. Rather, this is case where the plaintiffs have not discharged their onus to prove the facts upon which the damages are estimated. Where the absence of evidence makes it impossible to assess damages, the litigant is entitled to nominal damages at best: see Martin v. Goldfarb, 1998 CanLII 4150, 41 O.R. (3d) 161 (C.A.).
[156] Nominal damages may be given in all cases of breach of contract and may be awarded where a breach has been established but damages flowing from that breach have not. Nominal damages are a trivial amount – typically one dollar – and serve a symbolic rather than a compensatory purpose. They are always available for causes of action, like breach of contract, that do not require proof of loss, even if they are not pleaded. However, it is open to the court in an appropriate case to decline to award nominal damages where there is a proven breach of contract: see Place Concorde East Limited Partnership v. Shelter Corporation of Canada, 2006 CanLII 16346 at para. 76 (Ont. CA); Atlantic Lottery Corp. Inc. v. Babstock, 2020 SCC 19 at para. 105; and RINC Consulting Inc. (Roustan Capital) v. Grant Thornton LLP, 2020 ONCA 182 at para. 52.
[157] In my view, it is appropriate in this case to award nominal damages to the plaintiffs for the breaches of contract of Mr. Perera, even though the plaintiffs have failed to establish damages flowing from these breaches. Accordingly, I award $1.00 to the plaintiffs in nominal damages as against Mr. Perera.
C. Punitive damages
[158] The plaintiffs also claim punitive damages in the amount of $100,000.
[159] To obtain an award of punitive damages, a plaintiff must meet two basic requirements. First, the plaintiff must show that the defendant’s conduct was reprehensible. Second, the plaintiff must show that a punitive damages award, when added to any compensatory award, is rationally required to punish the defendant and to meet the objectives of retribution, deterrence and denunciation. When the claim against the defendant is for breach of contract, as it is here, the plaintiff must meet a third requirement: the plaintiff must show that the defendant committed an actionable wrong independent of the underlying claim for damages for breach of contract. See Boucher v. Wal-Mart Canada Corp., 2014 ONCA 419 at paras. 79-80.
[160] In Whiten v. Pilot Insurance Co., 2002 SCC 18 at para. 94, the Supreme Court of Canada stated, among other things, that punitive damages are very much the exception rather than the rule, and they can be imposed only if there has been high-handed, malicious, arbitrary or highly reprehensible misconduct that departs to a marked degree from ordinary standards of decent behaviour.
[161] I find it unnecessary to engage into a detailed analysis of the issue of punitive damages because, in my view, Mr. Perera’s conduct – as established by the evidence – was not sufficiently reprehensible and high-handed to justify the imposition of an award of punitive damages. This is not one of the exceptional cases where punitive damages should be awarded.
5. CONCLUSION
[162] In light of the foregoing, I dismiss the action as against Ms. Yu, and I order Mr. Perera to pay $1.00 in damages to the plaintiffs.
[163] If costs cannot be agreed upon, the plaintiffs and the Defendants shall deliver submissions of not more than four pages (double-spaced), excluding the bills of costs, by November 29, 2021. The plaintiffs and the Defendants may deliver responding submissions of not more than 2 pages (double-spaced) by December 10, 2021. The Defendants shall apportion costs as between Ms. Yu and Mr. Perera in their bill of costs/costs submissions.
Vermette J.
Released: November 16, 2021
CORRECTION NOTICE
Corrected decision: The names of Richel Castaneda and Daniel Hassell were added as counsel for the Plaintiffs
[^1]: While in his evidence at trial Mr. Mann repeated a number of times that Ms. Yu had left in the summer of 2010 after Mr. Desai, this is contradicted by the other evidence before me. In addition, the plaintiffs pleaded in their Statement of Claim that Ms. Yu worked for Mann Engineering from about June 27, 2005 to May 3, 2010, and this was admitted by the Defendants in their Statement of Defence.
[^2]: I note, however, that during his examination for discovery, Mr. Perera denied having reformatted his computer before returning it.
[^3]: I note that the copy that was marked as an exhibit at trial only has 3 pages.
[^4]: While Mr. Mann took the position in his testimony that Balnar had the obligation to keep confidential the contract that it had with Aris based on the word “Confidential” appearing in the footer of the document, the document with the word “Confidential” that Mr. Mann was relying upon was the CBS proposal to Balnar attached to the exchange of e-mails between Mr. Perera and Mr. Desai. There was no evidence before me that the word “Confidential” appeared in the contract signed by Balnar and Aris (as opposed to the document prepared by CBS based on the Aris contract).
[^5]: This conduct also constitutes a breach of section 3 of the Perera Employment Agreement which required that Mr. Perera, among other things, devote his full work time and attention to his duties and not provide to any other person services the same or substantially the same as the work he performed for Aris.